The Federal Trade Commission (FTC) affirmed a consumer right on Thursday that has big implications for the loan industry.

The FTC was asked to review the “Holder in Due Course” rule, commonly referred to as the Holder Rule, by the National Consumer Law Center (NCLC) and several other consumer rights organizations. The rule, which protects consumers who make purchases through a merchant using a line of credit, had come under fire recently after several court decisions put into question whether a consumer could try to regain payments made on a purchase through the lender if the merchant has sold a defective product.

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An example of a situation in which a consumer would encounter this problem is an auto loan, the NCLC says. Perhaps a car dealer sells a vehicle that is defective to a consumer, who uses a car loan to pay for the vehicle. The FTC’s ruling on the Holder Rule means that consumers can make a claim to the lender to stop paying the loan instead of having to make a claim to the merchant while continuing to have to repay the loan to the lender. The result, the NCLC says, is a more efficient and consumer-friendly process for disputing purchases.

“The FTC Rule on the Preservation of Consumers’ Claims and Defenses is a cornerstone of consumer protection,” the NCLC said in a press release. “It makes it far more practical for consumers to raise claims against sellers, even when the seller is insolvent or skipped town, and it encourages lenders to scrutinize the sellers with whom they form business relations.”

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The NCLC says this affirmation of the rules will make lenders more accountable when it comes to dealing with reputable merchants.

The FTC’s vote interpretation of the rule was unanimous at 5-0.

Image: achimh, via Flickr

The recently enacted JOBS Act (Jumpstart Our Business Startups) is a either terrific boost for small businesses looking to raise money, or an invitation to investor fraud, depending on whom you ask about it. To learn more about the potential upside of this legislation, I interviewed small-business attorney Garrett Sutton. He is a Rich Dad adviser, founder of CorporateDirect.com, and the author of five books, including his most recent title, Start Your Own Corporation. (Disclosure: Garrett and I are co-authors of the e-book Business Credit Success: Get on the Financing Fast Track.) Here is an edited excerpt from our interview:

Gerri: Can you fill me in on what the JOBS Act means for entrepreneurs who are looking to raise money for their companies?

Garrett: The JOBS Act is a significant development in fundraising for entrepreneurs. Basically what it does is it loosens the previously very tight restrictions on fundraising in several important ways.

In the past, you may have tried to raise money with a Regulation-D, Rule-506 offering. That’s a private placement where you don’t have to register with the federal government or your state government, so it’s a fairly flexible way to raise money. But you were hamstrung by the fact you couldn’t advertise this offering. It could only go to people that you knew, people you had a pre-existing relationship with such as friends, family or colleagues. So you really couldn’t get the offering out there to a large number of people.

Well, what the JOBS Act does is allow accredited investors, which I’ll define in a second, to to receive advertisements for these private placement offerings. That’s great because previously, these accredited investors couldn’t be reached by any sort of advertising.

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An accredited investor is someone who has either $1 million in net worth exclusive of their home, so $1 million on top of the price of their home. Or, they’ve earned $200,000 a year for the past 3 years, or $300,000 a year if they’re married.

So if you a have $1 million in net worth, or you’re earning a significant amount of income, the Securities and Exchange Commission says look, these people are sophisticated, they can take care of themselves. Our job is to protect widows and orphans. If someone has $1 million in net worth and a high-level of income, they can make their own decisions.

Gerri: Some of the criticisms I’ve seen about this particular act in this area was that it would open the door to a lot of fraud for unsophisticated investors.

Garrett: Yes, we’re going to talk about crowdfunding next, and there is that risk on the crowdfunding side, because with crowdfunding, anyone can invest. You don’t have to be an accredited investor. And so there is sort of a fraud issue that you have to worry about there, but they’re putting in some restrictions that hopefully will minimize that. (Crowdfunding allows companies to raise money from a large number of people over the Internet.) So on the Rule-506 side, you can raise as much money as you want, and you can advertise the offering but it has to come from accredited investors.

Gerri: What do you think is going to happen, in terms of those small businesses who want to raise money? Are they going to have to find companies to advertise for them to these accredited investors? Wouldn’t it be hard to find them yourself?

Garrett: Yes, and the SEC has 90 days to come out with rules on how the Rule-506 side is going to work. On the crowdfunding side, you can raise up to $1 million from anyone and you can advertise it on the Internet. But, you have to go through certain SEC-approved portals and the job of these portals is to make sure that the people offering the securities over the Internet are not fraudsters.

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Now, will some bad apples slip through? Absolutely. I don’t know how you’re going to stop that. Most commentators I’ve talked to have said, “Look, we need to have capital formation. We need to allow people to be able to invest in these startups. We’re going to give up a little bit of, there’s going to be some fraud in the system because of this, because we’re loosening it up. Some fraudsters are going to slip through. But in order to get capital formation and job creation going, we’re willing to let a little of that in to help entrepreneurs get their projects funded.”

Gerri: So, if you’re someone with a small business or starting a small business, when can you reasonably expect this option to be available?

Garrett: On the crowdfunding side the SEC has nine months to put it together and I’m certain they could get extensions if it’s not quite right. But, the industry is moving pretty quickly to work with the SEC to establish these portals. They’re going to be establishing protocols for who can invest, what type of information has to be provided and that sort of thing. So, I would say in the next year, Gerri, you’re going to be seeing this crowdfunding starting to happen.

Gerri: So 2013 is probably the year of crowdfunding. Do you see this replacing the need to establish business credit?

Garrett: No, actually I think it’s going to accelerate the need for business credit if people are able to go out and raise money. They still need to have good business credit as they continue with their business. So, this may help some businesses get off the ground but at the same time, they’re still going to need to establish business credit as they move forward in their entrepreneurial ventures.

Want to listen to the complete unedited interview with Garrett Sutton discussing the JOBS Act? Download the interview here; or play the interview online; or listen to or download it from iTunes.

The amount being carried on consumers’ credit cards has generally been falling for more than a year, but that trend may have been reversed in March, as balances increased sharply, as did borrowing on other types of credit.

Consumer credit card balances rose 7.8 percent in March, the first time they’ve risen since the new year, to a total of $803.6 billion, according to the latest monthly consumer credit statistics issued by the Federal Reserve Board. That’s up from the $798.5 billion seen at the end of February, but still down slightly from the $803.8 billion seen at the end of last year, when consumers increased borrowing to fund their holiday gift purchases.

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In addition, the amount consumers paid for carrying a balance from one month to the next increased significantly from the end of 2011, the report said. In all, APRs on credit card accounts that were assessed interest rose to an average of 13.04 percent from 12.78 percent. However, the average interest rate on all accounts slipped somewhat to 12.34 percent from 12.36 percent at the end of last year.

Meanwhile, the amount of borrowing on nonrevolving credit—that is, consumer installment loans not including mortgages, and largely driven by student lending and auto financing—increased even more significantly, rising 11.3 percent on an annual basis in March to a total of nearly $1.74 trillion, up from slightly more than $1.72 trillion. This was driven largely by federal student loans, which rose by about $6.9 billion in March.

Overall, consumer borrowing of all types increased to more than $2.54 trillion, up from the previous month’s $2.52 trillion, and up 10.2 percent from the same time last year, the report said. That was the largest spike in consumer borrowing in terms of both percentage and dollar amount seen since the final months of 2001.

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Since the end of the recession, consumers had been far more conscientious in avoiding credit card debt, prompting balances to fall considerably in the last year. Many experts noted this was the result of many cash conscious consumers becoming “transactors”—borrowers who pay off their bills in full at the end of every month—instead of “revolvers,” who tend to carry a balance. However, some had also predicted that by broadening lending standards again, many card issuers might see increases in balances.

The Senate rejected a bill today that would have prevented student loan rates from doubling to 6.8 percent on July 1.

Sixty votes were needed to pass the bill, which would have prevented government-subsidized Stafford loans from rising through the elimination of several corporate tax cuts. The final roll call vote was 52-45.

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For those about to take on some Stafford loans, this doesn’t mean that loan rates will necessarily rise on July 1 as planned. The House of Representatives has passed a bill to keep the Stafford loans at 3.4 percent for another year. That bill, sponsored by House Republicans, would repeal a piece of the Obama administration’s health care act in order to fund the student loan rate reduction.The bill, passed April 27 by the House, is now up for consideration in the Senate as the July 1 deadline looms.

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Bot President Obama and presidential candidate Mitt Romney are in favor of freezing student loan rates at their current levels, as we previously reported. They only differ on how to pay for it.

Both of the bills proposed by the House and the Senate would only extend the current student loan rates for another year. A rate increase would need to be considered again in 2013.

Let’s face it, the need for financial aid doesn’t magically disappear once a college diploma is earned. New college graduates heading out into the real world will likely come a knockin’ on family doors for some help in the early going. Here’s how to help a new college graduate without totally messing up your own finances:

Do …

… make sure they have health insurance. Even for graduates who’ve managed the not-so-easy feat of landing a full-time job in this rough job market, it may not come with full benefits.

No one, no matter how young and healthy can afford to forego health insurance. Parents can currently keep a child on their health plan up until the child turns 26. Just be aware that federal rule is part of the health reform case before the Supreme Court. Depending on the Court’s ruling—expected in June—this provision may be changed. Stay tuned.

Another option is to buy an individual health insurance plan. For young healthy folks the cost should be quite manageable. At a minimum aim for catastrophic coverage: insurance that has a higher deductible, but provides coverage in the event of a major illness or injury. This is one must-have that family should gladly chip in and help with, if necessary.

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… jump start their retirement savings As great as it would be for every twenty-something to get cranking on retirement savings, we all know that’s a long shot given the long list of other priorities (see: student loan repayment, rent, covering the credit card bill etc…) This is where family can make a huge impact: help your college grad start socking away money in a Roth IRA.

As long as your grad has earned income, the money for funding a Roth can come from another source: i.e., the bank of Mom, Dad, Aunt, Uncle, Grandma, Grandpa etc. Any individual with income below $110,000 can contribute up to $5,000 this year in a Roth IRA. You could front your grad the full $5,000. Or consider a family match for every dollar they contribute. Could be dollar-for-dollar. Or given there are just starting out, maybe a $4 for $1 match. So if your grad contributes $1,000 you’ll kick in the other $4,000. Do that for five years and then let the sum just keep compounding at an annualized 6 percent, and today’s 22-year-old college grad could have more than $300,000 by age 67. That’s a pretty nice nest egg, jump-started by family.

… make sure they are on top of their student loans. Within six months of graduation, students must begin paying back their college loans. Doesn’t matter if they are employed or not. The penalty for not getting with the repayment program is fierce. Defaulting on a student loan is not a solution: wages will be garnished, credit scores will be eviscerated, and there is literally no escape as student debt is not discharged in bankruptcy. Cheery news, eh? That’s why helping to make sure your grad is on top of their repayment is so important.

If your grad has federal student loans there are some terrific options for deferring payments if they are unemployed, or getting on a low-payment plan tied to their income. But they must apply for both. Their financial aid office should have walked them through all this prior to graduation, but that may not have happened—or registered in the waning days of college. The Department of Education has a clear walk-through of the repayment options for federal student loans.

If your grad has private student loans, it is doubly important to make sure they don’t drop the ball. Private lenders have the right to pile on all sorts of fees and penalties that can cause a manageable balance to balloon out of control. Unfortunately, private lenders aren’t required to offer the same generous repayment terms as are available on federal loans. But playing ostrich is just going to make matters worse: while the grad has her head stuck in the sand, the loan will fall into default, and from there it’s a short hop over to a debt collector. And you really don’t want that fate to fall on your grad, right? So the best move is push the grad to stay on schedule with the payments.

[Related Articles: Read more on student loan debt]

Don’t …

… co-sign for a car loan. Sure, your freshly minted college grad might need a car to get to the new job. But don’t reflexively think it’s your job to co-sign for a car loan. If your grad flakes on the payments that means you are on the hook. And don’t think they will learn a hard lesson if the car is repo’d. You’ll take the hit as well: it’s going to show up as a major ding on your credit file.

Encourage your grad to shop for a less expensive car-new or used-that they can qualify for financing on their own.

… co-sign for an unsecured credit card. Sure, this one is unsecured debt, but it’s still got the potential to screw up your finances. The credit card issuer—or the debt collection firm that buys the account—can and will come after you for payment.

If your grad can’t land a card on her own, then encourage her to shop for a secured credit card that reports transactions to one of the three major credit bureaus. With a secured card the holder will need to fork over a deposit—that’s the secured part-and charges are limited to that sum. It’s credit on training wheels. The idea is for the grad to spend six months to a year being a payment angel on this card to start building a solid credit report. Then it will be no problem to graduate into a regular credit card; in fact, chances are offers will start pouring in once that payment history on the secured card is established.

Now about the deposit: if your grad can’t navigate this speed bump, go ahead and chip in. Up to you whether you want to make it a gift or a loan.

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Image: Bill S, via Flickr